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REFILE-UPDATE 2-Bulgaria to nationalise Corpbank if shareholder talks fail
June 23, 2014 / 9:16 AM / 3 years ago

REFILE-UPDATE 2-Bulgaria to nationalise Corpbank if shareholder talks fail

(Fixes garble in 22nd paragraph)

* Bulgaria may prop up Corpbank group after bank run

* Investors must give answer on support by Friday: source

* Corpbank not a risk to banking system: government

By Tsvetelia Tsolova and Matthias Williams

SOFIA, June 23 (Reuters) - Bulgaria will nationalise Corporate Commercial Bank (Corpbank) by July 21 if shareholders fail to provide the country’s fourth-largest lender with the funding it needs after a run on deposits, the finance minister said on Monday.

Customers unnerved by media reports of suspect deals involving Corpbank and its top shareholder queued to withdraw their money last week, prompting the central bank to take control of the bank, freeze its operations and order an audit of its books.

Both the bank and the top investor, businessman Tsvetan Vassilev, have denied any wrongdoing.

The government and the central bank plan to hold talks with Corpbank’s shareholders and Finance Minister Petar Chobanov said the shareholders would have an opportunity to provide the extra capital that Corpbank needs.

Failing that, he said, the government stood ready to inject capital into Corpbank through two state-run institutions - the Bulgarian Development Bank and the Deposit Insurance Fund, and may nationalise it by July 21 when it is due to resume normal operations.

The top shareholders in Corpbank are Vassilev, with just over half of the company, Oman’s sovereign wealth fund, with around 30 percent, and Russia’s VTB Asset Management with nearly 10 percent.

“The aim is to recover the bank group and for the depositors to receive their funds in full,” the finance ministry quoted Chobanov as saying.

The crisis has hit just as Bulgaria starts a European investor roadshow to raise 1.5 billion euros from bond sales. The money is needed to roll over bonds maturing in January and finance the country’s budget deficit.

Bulgarian credit default swaps (CDS) closed on Friday at 123 bps, the highest since early-December 2013, and a rise of 10 bps on the day, according to Markit. No data was available for Monday.

BANKRUPTCY DENIED

The crisis is another headache for Prime Minister Plamen Oresharski’s minority government, which has struggled to revive economic growth and stem a sharp drop in foreign investment, and is due to resign after a poor showing in European elections in May.

The political instability prompted Standard and Poor’s to downgrade Bulgaria’s sovereign credit rating to one notch above junk earlier in June.

Anxious to stop panic spreading to other banks, the central bank and the government have stressed that Corpbank was not bankrupt, that its problems were an isolated case and that they posed no risk to Bulgaria’s banking system.

A government source familiar with the situation said the shareholders would have to say by Friday whether they were prepared to provide the funds for the capital increase, or Corpbank would be taken over by the state.

The central bank has said VTB is interested in offering support. A Bulgarian newspaper said officials from Oman were in Sofia.

A spokesman for the central bank on Monday declined to comment on this. Neither VTB nor the Omani fund have commented since the bank run.

Bulgarian media said one cause of the run on Corpbank was a row between Vassilev and a rival businessman.

Without naming any party, prime minister Oresharski alluded to a dispute in an interview published on Monday as evidence that its problems were unique.

“...the basis for what is happening is a noisy corporate clash,” Oresharski said. “I see no reason for the destabilization of other banks.”

The central bank governor Ivan Iskrov said on Friday that Corpbank depositors had stepped up withdrawals after an anonymous letter was leaked to media that said the central bank’s deputy governor in charge of banking supervision was being investigated by prosecutors for abuse of office.

Bulgarian media linked the investigation of the deputy governor to the allegations of wrongdoing at Corpbank. The central bank has since confirmed the investigation and said the deputy governor had taken a voluntary leave of absence.

With the scale of deposit withdrawals by customers still unknown, it was not clear how much new capital might be needed to prop up Corpbank, which had loans of almost 5 billion levs ($3.5 billion) as of March and capital of 622 million levs, excluding a subsidiary it acquired earlier in June.

The funds in the state Deposit Insurance Fund, which at the end of 2013 stood at 1.8 billion levs, were enough to cover Corpbank’s capital shortfall, the ministry quoted Chobanov as saying.

The central bank has not yet made clear whether it plans to leave shareholders with a residual stake in the bank, as happened in most of bailouts sparked by the global financial crisis, or wipe out their holdings completely, as in the 2013 nationalisation of Dutch bank SNS.

The shareholdings in Corpbank are unusually concentrated, with the top ten investors owning more than 90 percent of the bank, making it a different political choice to that faced by governments that were dealing with hundreds of thousands of small retail investors.

Bulgarians will have the choice to keep or withdraw their deposits from Corpbank when it reopens on July 21, the finance minister said.

Bulgaria’s Standart newspaper flagged concerns about how the government would provide for 6,000 retired people who receive their pensions via Corpbank bank, as well as state workers who receive their salaries through Corpbank, until the bank reopens. (Additional reporting by Sujata Rao and Laura Noonan; editing by Tom Pfeiffer)

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